Brexit Bill on the agenda as R2 of negotiations begin

The second round of withdrawal negotiations begins today. The new addition to the list of topics is the abominable Brexit bill. Leave.EU recaps on the European Commission’s manipulated mathematics.

Originally mooted at between €45 and €60bn, the Brexit bill quickly grew to €100bn before the concept of a single bill was dismissed by the European Commission altogether in favour in of an agreement on a methodology for attributing the EU’s various assets and liabilities to its departing member, the first ever.

The EU’s lead negotiator, Michel Barnier has now ordered all EU representatives, including the EU27, to avoid giving any kind of ballpark figure. The Commission is vainly attempting to create an unusual atmosphere of confusion and calm, but Barnier and his chums are not kidding anyone, the EU is out to squeeze the British taxpayer for every penny.

Broadly speaking, the original €60bn bill consists of an exaggerated share of the EU’s €600bn in liabilities without deducting for much of the EU’s assets. Since then, the Financial Times has gleefully announced an inflated figure of €100bn, the result of panic from the big recipients from the EU budget that they will soon be faced with bigger annual contributions, lower payouts, or both.

More recently, the EU has focused on turning Britain’s £9bn worth of assets into a strategic liability, by pouring doubt on when those funds can be released. There is talk of the UK’s stake being kept on lockdown until all the projects funded by the investment bank reach their conclusion, which would take years and years. It would also mean the £9bn could not be drawn down against the mounting liabilities.

In over-complicating Britain’s EIB assets, the EU has also revealed a clear intention to make an agreement over the methodology as slow as possible, forcing David Davis and his negotiating team to give in before it is too late to get started on a trade agreement of any depth and breadth. When negotiations kicked off last month Davis agreed that there would no trade discussions until the “single financial statement” had been settled, having previously insisted that all issues would be discussed at the same time, not sequentially as Barnier had demanded.

Creative accounting

On top of all the politics is the seldom-addressed question of how on earth the European Commission came to such a ridiculous figure.

The Pensions of EU officials account for €63.8 billion of the EU’s liabilities. Inexplicably, there is no pension fund to draw from. The EU simply allocates a certain amount of its annual budget to former staff’s pensions. Britain’s share of this amount is likely to have been inflated by calculating it in relation to the country’s size relative to other EU countries, even though the UK has been historically underrepresented in the EU civil service. In other words, if we do pay up, it won’t be for UK pensions.

The biggest class of liabilities are the debts that have piled up as a consequence of ‘commitments’ to different projects exceeding budgets year on year. The culprit is the EU’s French forked-accounting system, which separates payments from appropriations. The system provides no incentive for available budget allocations to be squared with appropriations. Add that to the Commission’s well-known disregard for taxpayers’ money and spending commitments spiral out of control and spending spirals. Outstanding payments currently total €241bn. The books have not been balanced since 2000. Somehow, the UK is partly liable for this criminally irresponsible expenditure (See Chart 1.)

On top of this debt is €172.4bn worth of outstanding payments for hundreds of projects scheduled over the next seven years. Britain is expected to pay for them in advance of leaving.

Unsurprisingly, there is no clarity on what Britain is legally obliged to pay for. At the heart of all of the confusion is the idiocy of an institution as vast and powerful as the European Commission able to make so many far-reaching decisions on Britain’s behalf. The EU will fight tooth and nail to argue that the UK is liable for a share of any action undertaken by the Commission, no matter how foolish. The mess not only highlights the amount of sovereignty transferred from London to Brussels, but the danger in putting that power in the hands of an unaccountable institution like the European Commission.

Democratic nation states function because they are accountable only to the public, craven to no higher authority than the odd treaty. But such an argument will carry little weight with Barnier. Before becoming a European Commissioner himself, he was a product of France’s monolithic public service, which accounts for fifty percent of all employment. The omens may not be promising, but if we ever need a reminder of why we voted to leave, we will never have far to look.